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Speech by DR. FAROOQ ABDULLAH, Chief Minister, Jammu and Kashmir
49th N.D.C. Meeting
, 1st September 2001, Vigyan Bhavan, New Delhi.


Respected Prime Minister and distinguished members of the National Development Council.

1. It gives me immense pleasure to participate in this meeting of the National Development Council. We have met here mainly to discuss the approach paper to the 10th Five Year Plan (2002-2007) which aims at achieving a growth rate of 8% per annum though the report of the National Development Council Sub-Committee on the criterion for allocation of funds under major rural poverty alleviation programmes, status report on the NDC Sub-Committee on transfer of centrally sponsored schemes and placing of Uttaranchal on the list of special category states will also be considered. As indicated in the approach paper itself, achieving this level of growth will entail a lot of effort on the part of alt concerned including the Central Government, the State Governments, the private corporate sector and people in the un-organized sector.

2. While we will be deliberating on the said approach paper, I would like to place on record some important issues which this august gathering should also consider seriously.

Prime Minister's Gramoday Yojana

3. The Basic Minimum Services Programme (BMS), which has been replaced by Prime Minister's Gramoday Yojana (PMGY), was started with the aim of providing additional resources for certain stipulated programmes which directly affect the well being of the population including those who are not directly benefited by the growth in the GDP. The idea was that the basic minimum facilities like drinking water, road connectivity, universal elementary education, primary health care, nutrition, rural electrification etc get sufficient allocation so as to ensure that with the additional funds, the said facilities are made available to the whole of the population in a time bound manner.

4. The funds under BMS were being released by the Planning Commission in the same way as the normal funds with only certain additional riders tike ensuring a stipulated level of expenditure (50%) by the end of a stipulated date (31st December). Under PMGY, the system has been changed so that now the Ministry concerned has to issue the guidelines. The concerned Departments of the State Government has to approach the said Ministry for approval of the programme. The Ministry sanctions a stipulated portion of the annual allocation and releases 2nd/subsequent installments on the receipt of detailed information from the Department of the State concerned even though the entire Additional Central Assistance under PMGY is treated as part of State's plan outlay. This procedure is quite cumbersome and does not help to achieve the objective for which BMS / PMGY was launched because the flow of funds is not as smooth as it used to be earlier. I had apprehended this and communicated to the Deputy Chairman, Planning Commission and to other authorities of Government of India last year As indicated by a communication from Planning Commission issued recently, only Punjab and Tripura had been able to lift the entire outlay under PMGY (other than rural roads) last year. I am afraid that that must be the case in case of PMGY [rural roads) also. I feel that it will be in the interest of the programme, which has a laudable objective, if the release of funds is undertaken in accordance with the original system.

5 The BMS Programme had an element of flexibility built in to it, while the original guidelines of BMS indicated that at least a minimum amount under each service had to be provided, it was later decided to authorize the State Governments to decide the allocation for each service subject to the condition that the total expenditure incurred on items of BMS is not less than the minimum adequate provision (MAP) This gave the State Governments a chance to allocate more funds for services in respect of which the problem in the State concerned was more acute. The present system under PMGY is that at least 10% of the ACA has necessarily to be allocated for each item and at least 15% has to be allocated for nutrition. The State Governments have to request the Planning Commission for lower allocation if the State Government feels that the magnitude of problem in respect of a particular item is such that less than 10% of the ACA is required to be allocated for the said service. Some times even after the request of the State Government this may not be acceded to with the result that priorities of the State Government get distorted. I would suggest that we should go back to the original system of keeping total flexibility among various items of the PMGY and leaving the priorities to the State Government concerned. Let me also point out that the introduction of PMGY and PMGSY is a reversal of efforts to give States more and more devolution and decentralization.

Funding Pattern of the State Plan

6. Jammu and Kashmir State has been categorized as a special category state because of its hilly terrain, difficult climatic conditions and other factors as per prescribed norms. However the State was not provided with the facility of plan assistance at the rate of 90% in the form of grant-in-aid and 10% in the form of loan, which is the pattern applicable to special category states, until 1990's. While the State government has been requesting to give effect to this pattern from the beginning of the categorization of the State as special category State, the Central Government has yet to accede to this request. I would reiterate this.

7. I have noted that the loan component in the Annual Plans has gone up significantly as a source of funding. For example, negotiated loans account for Rs. 318.35 crores in the Plan for 2001-2002 or about 15.53% of the plan outlay against only Rs. 45.58 crores in 1996-97 or about 3.65% of the outlay. The economy and public finances of J and K have been very adversely affected by the ongoing militancy. This has put excessive strain on our limited resources. Deviation from the norm of 90% grant and 10% loan, by increasing negotiated loans to be borrowed from financial institutions which are to charge interest at stipulated rates as a component of the plan finance, would further adversely affect the resource position of the State when loans become due for repayment from the next year. I would suggest that either the entire loan be lifted by Government of India from these institutions and provided to the State Government in the stipulated proportion of grant and loan or the Central Government should repay 90% of loan along with interest thereon and the State Governments may repay the balance 10% of loan with interest.


8. The approach paper indicates that for achieving the requisite growth rate in the GDP, the gross investment will have to be more than 32% of the GDP. The document also indicates that the gross domestic savings should be of the level of, 29.80% of the GDP and that out of this 2.9% of GDP is expected to be contributed by the Public Sector Enterprises, 5.8 percent by Private Corporate Sector and 1.7% by the Government. In case of States like J and K, which have a very limited resource base, it may be difficult to achieve the level of domestic savings expected for investment. I may mention that there is hardly any public sector corporation which would be in a position to contribute to the total investment because there is no such Undertaking which is earning profits. So far as the private corporate sector is concerned, it is conspicuous in J and K by its absence. Therefore, public/private corporate sector will also not be able to make any significant contribution towards capital investment. This is despite the fact that the State Government has been and is trying to induce private sector, especially larger business houses, to establish industrial units in J and K. The Central Government will, therefore, have to be rather liberal in providing finances to J and K so that the rate of growth of our economy is commensurate with the rest of the country.

Capital content of Plan Outlay

9. In Jammu and Kashmir, and I am sure this must be situation in many other States also, the outlay meant for meeting the revenue component has been going up. This has gone up steeply during 9th Five Year Plan period with the implementation of the 5th Pay Commission recommendations, because of the fact that the posts created in the earlier plans were not transferred to non-plan and in case of J and K because of a major employment package. The outlay for revenue component in the plan of 2001-02 accounts for Rs. 796.02 crore or 38.83% of the total outlay as compared to 29.94% of outlay in 1997-98. In order that the plan is oriented towards capital investment it may be essential to consider the steps to reduce the expenditure on revenue account as a component of the plan. If the posts created in the plans, including those created during 9th Five Year Plan, are to be transferred to non-plan, the States will have to be provided with additional assistance to meet the non-plan resources gap.

Maintenance of Infrastructure/assets.

10. Under various plan schemes, large number of assets have been created during the past. However, because of the limited availability of funds under the non-plan budget, it has been becoming increasingly difficult for the Government to ensure proper maintenance thereof with the result that while new assets like roads, buildings and water supply schemes etc are being completed, the infrastructure created already starts decaying much earlier before its expected life. Probably realizing this, the Union Government has already started building into certain plan schemes like ARWSP, BADP etc for a stipulated portion of the funds to be utilized for maintenance of the assets. These however, are exceptions and the general maintenance of infrastructure and assets continues to suffer. I feel this is an important issue and some specific provision for maintenance of assets must be made available to states to augment the non-plan resources to ensure that such infrastructure/assets are properly maintained.

Power Grid connection to Ladakh

11. Ladakh region is perhaps the most deficient area in terms of power supply in the country In view of the topography and huge cost involved, not many micro-hydel projects could be taken up in this region. The area has near total dependence on diesel generation of power. Only some pockets of the region gets power supply and that too far a few hours a day. In view of the cost and logistics involved in transporting diesel oil, it has not been possible to extend power supply for longer duration in other places. The possibility of taking up medium sized hydel projects has been under the consideration of Government. Nimo Bazgo (30 MW) and Chuttuk (18 MW) projects have been transferred to NHPC for execution. However, in view of the restriction imposed by the Indus Water Treaty no pondage is allowed on river Indus: As a result of this, the generation will drop down to less than one third of the installed capacity during winter due to low discharge in the river. Therefore, even after these projects are commissioned, it will be necessary to make alternative arrangements to meet the power requirement of the people during winter. It may be mentioned that the CEA has suggested taking up of 132 KV transmission line upto Leh in view of the high tariff of the Nimo Bazgo hydel electric project. The State Power Development Department has prepared a preliminary estimate for 220 KV transmission line from Srinagar to Kargil to Leh for carrying 62.5 MW of power. The line is estimated to cost (according to 1999 estimates) Rs. 395 crores. Ladakh is the only region not connected with the National Grid and the construction of this transmission link will go a long way in bringing the people of this far flung area into the national mainstream. Besides, this will result in high savings to the Defence Ministry which is spending substantial amount on generating power through DG sets for its units stationed in that region. As a special dispensation, the Srinagar-Kargil-Leh grid line should be treated as a national project by the Government of India.


12. The problem of un-employment in J and K has been extremely acute. The position is likely to worsen in view of the fact that the State Government, as suggested by the Union Government, has taken a decision to ensure that the number of employees on the pay roll of the State Government and its undertakings get reduced. In order to ensure this, a complete ban on filling up of vacancies through the Service Selection Board / Public Service Commission was imposed East year. The major avenue of employment therefore will be in the private sector. For this purpose the self-employment schemes will have to play a major role in providing employment opportunities especially to the educated youth. It has been noted that the targets fixed for providing institutional finance under self-employment schemes are still not being achieved especially by the nationalized banks. This is revealed by the fact that against the target of 13,974 only 4,099 (29.33%) accounts were opened and the institutional loan advanced for self-employment constituted only 27.24% of the target for 2000-01.

Special Category States

13. In 1969, when the Gadgil formula for distribution of central assistance for state plans was evolved, there were only three special category states viz. J and K, Assam and Nagaland. The number of special category states has gone up to 10, which includes Himachal Pradesh, Sikkim, Manipur, Tripura, Meghalaya, Arunachal Pradesh and Mizoram besides the original three special category states, Uttranchal Pradesh is being added now. At present, in accordance with the Gadgil formula after setting aside funds for externally aided projects and a reasonable amount for special area programmes, 30% of the balance of central assistance for state plans is provided to special category state. While the categorization of Uttranchal Pradesh as special category state, which has topography similar to that of most of the other special category states is welcome, the pegging of 30% of the central assistance for special category states, means a reduction in the central assistance to each of the special category states. The NDC should therefore consider revising the said allocation from 30% upwards.

Jai Hind.